Indian Economy Update

June 22,2007

Isher Judge Ahluwalia

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Emerging Economies : Growing Contribution

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Emerging economies’ contribution to global economy is increasing rapidly

Their share of world exports has increased from 20 per cent in 1970 to 43 per cent in 2005

Their GDP growth at 7 per cent is three times that of mature market economiesat 2.3 per cent

GDP 2005 PPP (at 2003 Constant Billion

USD)

India:4th Largest Economy in PPP terms

Source: World Bank, WDI 2006 3

In real per capita terms, India is 9 years behind China.

Demographic Dividend

% of Population aged 15-64

Source: UN, Population Statistics 4

Indian Economy on an Upward Growth Path

GDP growth at constant prices(% per annum)

Source: Central Statistical Organization

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Inflation Rate (%)

WPI CPI

Source: Central Statistical Organization

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Declining Poverty

Source: NSS Full Sample Surveys

UNIFORM REFERENCE PERIOD

MIXED REFERENCE PERIOD

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Changing Income Distribution

Gini Coefficient

India China Brazil

1980 .32 .32 .581992 .32 .38 .602000 .33 .45 .592004 .33 .46 .56

Source: World Bank, WDI 2005, NSS Full Sample Surveys8

Comments on Poverty and Income Distribution

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Social Indicators :1

Life Expectancy(Years)

Literacy Rate(% of population)

Source: Census of India, National Family Health Survey-I,II,III 10

Social Indicators :2

Infant Mortality Rate(per 1,000 live births)

Maternal Mortality Rate

(per 10,000 live births)

Source: Census of India, Sample Registration System (SRS) Estimates, National Family Health Survey-I,II,III11

Social Indicators :3Population Growth

Rate(%)

Birth RateBirth per 1000

population

Fertility RateAvg lifetime births per

women

Source: Census of India, Sample Registration System (SRS) Estimates, National Family Health Survey-I,II,III12

Social Indicators :4Access to Safe Drinking

Water(% of households)

Access to Sanitation Facility

(% of households))

Source: Census of India13

Social Indicators :5

For children under three years of age. The nutritional status (weight-for age) is measured as percentage below 2 SD from the median of the International Reference Period.Source: National Family Health Survey-I,II,III

Underweight Children (%)

Net Enrolment Rate (%)

Source: Ministry of Human Resource Development 14

Gross Domestic Saving(% of GDP)

Source: Central Statistical Organization

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Gross Investment(% of GDP)

Source: Central Statistical Organization

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Trade in Goods and Services(% of GDP)

17Source: Reserve Bank of India

Exports & Imports of Goods and Services(% of GDP)

18Source: Reserve Bank of India

Growth of Goods Exports (%)

Source: Reserve Bank of India; Directorate General of Commercial Intelligence and Statistics (DGCI&S) , Ministry of Commerce, Government of India 19

Growth of Services Exports (%)

Source: Reserve Bank of India 20

Index of Real Effective Exchange Rate

21Source: Reserve Bank of India

Share of India’s Merchandise Trade in World (%)

Source: www.stat.wto.org 22

Current Account Deficit(% of GDP)

Source: Reserve Bank of India 23

Foreign Exchange Reserves(US $ Billion)

Source: Reserve Bank of India 24

Foreign Investment Flows(US $ Billion)

Source: RBI, India 25

Structural Change over timeGDP by Major Sectors: India and China

India China

1981 1991 2004 1981199

1 2004

Agriculture 38 31 22 31 26 13

IndustryManufacturing

25(17)

27(17)

27(16)

47(40)

42(33)

46(37)

Services 37 42 51 22 32 41

Source: World Bank, WDI 200626

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Import Weighted Average Import Duty Rates in India

1991-92 2006-07

Agriculture 68.3 39.5

Mining 95.5 5.8

Consumer Goods 114.1 30.2

Intermediate Goods 65.6 12.7

Capital Goods 94.8 8.2

All Commodities 77.2 10.8

India Inc on a buying spree

Company Acquisition Price (million $)

Reliance Industries Flag Telecom, BermudaTrevira, Germany

212.0

95.0

Tata Motors Daewoo, Korea 118.0

Infosys Technologies Expert Information Services, Australia

3.1

Wockhardt CP Pharmaceuticals, UK 18.0

Cadila Health Alpharma SAS, France 5.7

Hindalco Straits Ply, Australia 56.4

Wipro NerveWire Inc, US 18.5

Aditya Birla Dashiqiao Chem, China 8.5

United Phosphorus Oryzalin Herbicide, US 21.3Source: Wall Street Journal; IBEF Research

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Top 10 overseas acquisitions

Investor Investee Price ($)Tata Steel Corus, UK 8.04 bn

Hindalco Novelis 6.00 bn

Videocon Industries Daewoo Electronics, Korea 695 mn

Tata Tea Energy Brands Inc., US 677 mn

Suzlon Energy Hansen Transmissions, Belgium

570 mn

Tata Steel NatSteel, Singapore 486 mn

Tata Tea Tetley,UK 407 mn

Tata Steel Millennium Steel, Thailand 404 mn

Ranbaxy Terapia Romania 324 mn

VSNL Teleglobe, Canada 239 mn

Source: Economic Times, IBEF Research

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Factors driving the global acquisition spree

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Challenges1. Infrastructure

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Challenges2. Human Capital

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2. Human Capital (contd.)

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Thank You

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